“Purpose – the reason for which something is done or created or for which something exists.”
It is really fascinating … when I first drafted this article – back in October 2019! – there was not quite so much talk about ‘purpose’. Now there it is, everywhere.
When asked, what is the purpose of business, many people will probably answer that question with: make money, for the shareholders. No one would perhaps agree more with this view than Nobel Prize winning economist Milton Friedman who once stated there is “one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits, so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” (Capitalism and Freedom, Milton Friedman, 1962). When I talk about purpose, in the wider context of business and the more specific context of innovation, this is decidedly not what I mean. Fortunately, looking at recent research, articles and blog posts, many others also seemed to have moved on from this.
Could this be a positive side effect of COVID?
An article published by EY in April 2021 reported that, 59% of CEOs and C-suite executives of European companies felt challenged during the pandemic to focus on long-term growth. Not only that, 60% also said it had triggered a fierce debate on how to balance short-term priorities with long-term investments.
Only a few months later, in June 2021, Ernest & Young, led an article with the statement that: “CEOs should initiate a purpose-led strategic reset to capitalise on the upcoming economic rebound”, describing a purpose-led organisation as, “… one that puts a purpose beyond financial profit and at the centre of its decision-making”. This is something Salesforce CEO Marc Benioff emphasised in 2015 already, declaring that, “The business of business isn’t just about creating profits for shareholders — it’s also about improving the state of the world and driving stakeholder value.” Encouraging that, ultimately, the EY survey sent a strong message that the net effect of the pandemic has been to reinforce the importance of an approach that looks to the long term rather than bowing to short-term earnings pressure:
- 66% said “COVID-19 has increased expectations from stakeholders that our company will drive societal impact, environmental sustainability and inclusive growth”.
- 78% said “a focus on sustainable and inclusive growth has been critical to building trust with our stakeholders in today’s uncertain times”.
- 79% said “companies that maintain their focus on long-term value will emerge stronger in a post-pandemic world”.
Just as well as, according to Edelman’s 2020 Trust Barometer, 80% of participants in their annual survey expect brands to “solve society’s problems.” Equally well, that, at least in 2019, McKinsey found that only 7% of Fortune 500 CEOs believed their companies should “mainly focus on making profits and not be distracted by social goals.”
One the one hand it seems that COVID has accelerated and intensified CEOs and boards questioning and adjusting their view on whom their organisations are serving, the contribution they can or should make to society, and what constitutes value.
On the other hand, as so often in the initial phases of a movement, action and reality lag behind intent. Employees, while agreeing on the importance of purpose and believe that it should carry more weight than profit, don’t quite see their organisation’s purpose statements driving actual impact – see the graph below.
One possible explanation could be that purpose has not yet penetrated deeply into the DNA of business – both environmental and social initiatives often remain sideshows, dealt with in bolt-on departments rather than being integrated into every decision, and embedded into the core (particularly people-related ones).
Another challenge might be that, while ‘sustainability’ is often associated with environmental issues, ‘purpose’ tends to be more associated with social issues. Yet for me purpose is associated with creating a better world, and generally not only for me, but for other, for the wider community, for the entire planet. This means that I associate purpose with satisfying all aspects of the triple bottom line.
Does Purpose Really Matter?
Definitely, for a number of reasons.
Impact on financial performance
“Purpose drives performance. Period.”
Elaine Dinos, Janet Feldman, Rick Lash
Authors of People on a mission (2016)
Even if the reason d’être of business were to generate profits to distribute dividends to shareholders, being a purpose-driven would still be worth it. According to a study conducted by Korn Ferry, consumer companies focused on purpose experienced growth rates almost three times that of the overall sector.
Interestingly, we have had evidence that purpose-focus organisations outperforming their peers for a while: in their 2007 book ‘Forms of Endearment’ Sisodia, Sheth, and Wolfe declared that purpose-driven companies with humanistic values outperformed the S&P 500 by 14 times over 15 years.
But benefits go well beyond the financial.
Impact on levels of engagement
“People find meaning when they see a clear connection between what they highly value and what they spend time doing.”
Wendy & David Ulrich
Authors of The Why of Work: How great leaders Build Abundant Organisations That Win
Looking at what percentage of the global workforce is positively engaged, Galluprevealed in its 2020 survey a figure of just around 22% – less than a quarter of the workforce. Relying on about 20% of the workforce to drive present and future success seems a highly risky strategy. Understanding the three types of engagement it might become obvious why this is a problem:
- Type 1: Engaged employees are highly involved in and enthusiastic about their work and workplace. They are psychological “owners,” drive high performance and innovation, and move the organisation forward.
- Type 2: Not Engaged employees are psychologically unattached to their work and company. Because their engagement needs are not being fully met, they’re putting time — but not energy or passion — into their work.
- Type 3: Actively Disengaged employees aren’t just unhappy at work — they are resentful that their needs aren’t being met and are acting out their unhappiness. Every day, these workers potentially undermine what their engaged coworkers accomplish.
Two critical success factors in the 21st century, innovation and collaboration, both require a good deal of passion and commitment, without it they are bound to fail or, at best, deliver suboptimal results. It is not for nothing that US-based company Cargill (founded 1865, revenue of $114.6 bn in 2020) focused on levels of engagement when wanting to gauge the climate for innovation: disengaged employees are non-innovating employees.
And non-engaged employees are costly; in a 2020 article Gallup point out that in a company of 10,000 employees with an average salary of $50,000 each, the cost of their disengagement is $60.3 million annually. As a meaningful purpose can be a huge motivator and lever for engagement, leaders ought to try their hardest to centre their organisations around such purpose; if not in the interest of the employees, then perhaps (again) in the interest of improving the bottom line.
Impact on employee retention
“Help your employees find purpose – or watch them leave.”
Title of McKinsey article April 2021
Even before the pandemic there was evidence that purpose-driven organisations are better at retaining employees, so for example, Deloitte reported in 2015 that mission-driven organisations have a 40% higher retention rate.
While many of us may have sought fulfilment and purpose outside work in the past, through charity work or our hobbies, the younger generations expect fulfilment and purpose from their place of work: purpose, next to equity, transparency and flexibility was one of the things Millennials are looking for, according to Great Place to Work®. Similarly, recruiter Hays points out that competitive salaries and perks, which were enough to satisfy employees in the past, have been replaced by a desire to work with purpose and make a difference.
While this holds true particularly for Millennials and even more so Gen Z, COVID has made many more of us question our relationship with work. According to McKinsey‘s study published in April 2021, “Nearly two-thirds of US-based employees we surveyed said that COVID-19 has caused them to reflect on their purpose in life. And nearly half said that they are reconsidering the kind of work they do because of the pandemic.” (Though again, millennials were three times more likely to reconsider their work.)
Impact on employee wellbeing
“Research shows that work (whatever that work-role is for you) is instrumental to giving us a sense of purpose.”
Grace Mahon, Beingwell
What I found quite interesting is that there also seems to be a connection between purpose and wellbeing! For example, a study published in 2019 found that if you experience meaning and purpose in your life, you’re more likely to be physically healthy, as well as mentally; a US-based study of 6,985 adults over 50 yeas of age even revealed that those who experience purposeful living are likely to live longer.
There is also an entire book dedicated to exploring the impact of purpose in our lives by Victor J Strecher, Life on Purpose. In his book the author reviews the science of purpose and argues that the strength of one’s life purpose can be measured, and that it correlates highly with psychological wellbeing as well as having an impact on physical health and longevity. He defines purpose as involving a combination of living according to one’s values and goals, and striving to make a positive difference in the world.
Impact on consumer decisions
““The public expectations of your company have never been greater… Every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Without a sense of purpose, no company, either public or
private, can achieve its full potential.”
Larry Fink, Chairman and CEO of BlackRock, Inc.8
Deloitte found that how organisations treat their people, the environment, and the communities in which they operate influences our brand choices.
Unilever is prof that it is not only intent. About 40% of their brands fall under the ‘Sustainable Living’ umbrella, and these brand grow 50% faster than the rest – and deliver 60% of the company’s growth. So it is perhaps not entirely surprising that EY found that companies that score highly on ESG (Environment, Social, Governance) metrics can lower their cost of capital, as well as encourage longer-term investment.
Purpose & Innovation
“Mission-driven organisations have 30% higher levels of innovation.”
A meaningful purpose is not only important at the organisational level, in the context of innovation we should really make sure that each innovation project has a purpose! While explicit innovation strategies with direct tie-in to the overall business strategy are more and more common, I some times wonder how many innovation projects are driven by true purpose. This is why I am so enamoured with a model developed by friend and colleague Natalie Turner: the 6Is of innovation. This model has ‘purpose’ at its centre, where it becomes the touch stone for all 6 phases of the innovation journey:
- the identification of opportunities (Identify),
- the generation of ideas around selected areas of opportunity (Ignite),
- the evaluation of selected ideas (Investigate)
- the selection and resourcing of proposed ideas (Invest)
- the realisation of chosen ideas (Implement)
- the improvement of implemented ideas (Improve)
You can find out more on the 6’I’s website as well as in the book that offers a host of useful tips and tools for each stage. (Those who know me will understand the depth of my appreciation when I share that I am actually a qualified practitioner for the 6’I’s; in fact I was the first one, and truly proud of it.)
What Do Purpose-driven Organisations Look Like?
“A culture of purpose guides behaviour, influences strategy, transcends leaders–and endures.”
Punit Renjen, Deloitte Global CEO
If you are wondering what characterises purpose driven organisations, Korn Ferryhave identified the following four aspects:
- The CEO and others lead from values and purpose to make decisions. To be more explicit,
- CEOs wo seek to be humble, confident, resilient, and courageous;
- Boards committed to purpose to sustain success;
- Long-term strategy that honours the organisation’s values and heritage;
- Their leaders’ vision is seen unexecuted always with purpose in mind.
- People are the top priority. Companies invest in people to drive growth. To be more explicit,
- Hiring the right people is key and the critical start;
- The mission then is reinforced trough development, communication, and accountability;
- Leaders seek to assist individuals in aligning their purposes with those of the organisation; this drive engagement.
- Culture is reflective of human communities, as people bring their whole selves to work. To be more explicit,
- Culture affects communities, allowing people to bring their whole selves to work;
- Values are taken about and alive within the company;
- Work-life balance is redefined;
- Organisations reinforce collaboration and innovation, as they strive for inclusive communities.
- Enabling Practices exist in all parts of the organisation, revealing a pervasive commitment to purpose. To be more explicit,
- Clear roles, decision making, and accountabilities; these must align with values and core purpose;
- Robust internal communication and transparent external communication – these are the foundations of their optimal brand building efforts;
- To measure what matters.
The Purpose of Purpose!
“In the end, purpose is not about what is in it for me, but what’s in me for them; be ‘me’ an individual, an organisation, or a country; ‘purpose’ and ‘contribution’ are interlinked.”
Bettina von Stamm
Should you still doubt the power of a meaningful and relevant purpose, just think about the charity sector where many work for free or at reduced rates. People align with charities because they believe in their purpose. It is believing in the cause that inspires them, and motivates them to give their full commitment, be full engaged, go beyond what is expected.
Being purpose driven makes all the difference. In their research report Imperative (a peer coaching platform) state, “Some people see work in their lives as solely a source of income or status. Others, which they call Purpose-Oriented Workers, are oriented to see work as primarily about purpose – personal fulfilment and helping other people. They found that the latter are the, “most valuable and highest potential segment of the workforce regardless of industry or role.” This is reflected in a number of statistics; Purpose-Oriented Workers,
- have a 20% longer expected tenure;
- are 50% more likely to be in leadership positions;
- are 47% more likely to be promoters of their employers;
- experience 64% higher levels of fulfilment in their work;
- do significantly better in their performance evaluations, across industries and roles.
Yet their research also found that only 28% of the US workforce all into the Purpose-Oriented Worker category.* Could not organisations significantly increase this number by becoming purpose-driven themselves? What would happen if all organisations were truly purpose driven?
Only good things, is the answer.
* I am quite intrigued to find out how and where these workers are different from engaged employees!